UK Week in Markets Week ending 07 February 2021 - Aon

UK Week in Markets
Week ending 07 February 2021

Key News and Events

         The US Senate passed legislation which would allow the proposed $1.9tn economic relief package to
          be approved with a simple majority. The package will now require a minimum of 50 votes in the Senate
          and the tie-breaking vote of the Vice-President to be passed. Long term treasury bond yields rose to
          push the US yield curve to the steepest level in years. The spread between the 10-year and the 2-year
          yield reached the highest level since 2017. Meanwhile, the US unemployment rate fell to 6.3% from
          6.7% last month. However, the economy only added 49,000 jobs in January.

         The Bank of England kept the interest rate unchanged at a historic low of 0.1% and downgraded its
          growth forecasts for 2021 to 5% from 7.25%. The Monetary Policy Committee also expects the
          economy to contract by 4% in Q1 2021 and recover rapidly in the second half of the year on the back of
          vaccination progress, failing which, it may impose negative interest rates.

         Elsewhere, South Africa has halted the rollout of the AstraZeneca/Oxford vaccine after initial evidence
          suggested that the vaccine is not effective against the new strain of the virus.

         Former president of the European Central Bank, Mario Draghi, is set to form a national unity
          government in Italy after talks broke down to rebuild a coalition government led by Giuseppe Conte.
          Elsewhere, the Eurozone economy fell into a double-dip contraction as the economy contracted by
          0.7% in Q4 2020 and gross domestic product fell by 6.8% over the year.

                 Market Overview

 Index Returns
                                                     Last Week                                                 1 Month
  6.0%
  5.0%
  4.0%
  3.0%
  2.0%
  1.0%
  0.0%
  -1.0%
  -2.0%
  -3.0%
  -4.0%
             Global                  UK            US            Europe ex-UK        Japanese      EM Equities             UK Fixed      UK Index-      UK Credit
            Equities               Equities      Equities          Equities           Equities                           Interest Gilts Linked Gilts

 Cumulative Return Over Last 12 Months
                Global Equit ies               UK Equities             US Equities               EM Equities                  UK Fixed Interest Gilts    UK Credit
    30%

    20%

    10%

     0%

   -10%

   -20%

   -30%

   -40%
      Feb-20                                  May-20                                 Aug-20                                   Nov-20                             Feb-21

Chart Source: FactSet, FTSE, MSCI, ICE BofAML. Total return in GBP terms shown.

Market Summary

 Equities
        Global equity markets rose over the week.
        The MSCI AC World Index rose by 4.5% in local currency terms and rose by 4.4% in sterling terms.
        The Telecommunications sector was the best performer, returning 7.1% in sterling terms.
        The Health Care sector was the worst performer, returning 0.9% in sterling terms.
        Emerging Market equities were the best performing market in sterling terms (+5.0%).
        UK equities were the worst performing market in sterling terms (+1.1%).
 Government Bonds
        The 10-year gilt yield rose by 16bps to 0.48% and the 20-year gilt yield rose by 18bps to 1.00%.
        The 10-year US treasury yield rose by 8bps to 1.17%.
        At the 10-year maturity, the German bund yield rose by 6bps to -0.46% and the French government
         bond yield rose by 5bps to -0.24%.
        Irish government bond yields rose by 17bps to -0.13%.
        The UK Over 5-year real yield rose by 9bps to -2.05% and the UK 20-year real yield rose by 11bps to -
         2.31%.
        20-year breakeven inflation rose by 6bps to 3.23%.
 Credit
        The sterling non-gilt spread over UK gilt yields (based on the Merrill Lynch index) fell by 4bps to 95bps
         over the week. Sterling Investment Grade bonds fell over the week, returning -0.9%.
        The spread of hard currency emerging market debt over US treasury yields fell by 13bps to 341bps
         over the week.
        The US high yield bond spread over US treasury yields fell by 21bps to 358bps over the week.

 Commodities
        The S&P GSCI index rose by 4.5% in USD terms over the week.
        The S&P GSCI Energy index rose by 8.4% as the price of Brent Crude oil rose by 6.2% to US$59/BBL.
        Industrial metal prices rose by 1.5% as copper prices rose by 0.8% to US$7,937/MT.
        Agricultural prices fell by 0.1% and gold prices fell by 3.3% to US$1,803/Oz.
 Currencies
        Sterling was unchanged against the US dollar and rose by 1.0% against the euro, ending the week at
         $1.37/£ and €1.14/£ respectively.
        The US dollar increased by 0.7% against the Japanese yen, ending the week at ¥105.47/$.
Jo

Him m at Dhaliwal
Aon – London
himmat.dhaliw al@aon.com
 +44 (0) 1372 73 3619

Nikhil Anto
Aon – Bangalore
nikhil.anto@aon.com
+91 80 6621 8236

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